Leon Wilson Trading Success
A talk given by Mary de la Lande to the
BullCharts User Group Meeting on 13 February 2008
1. Who is Leon Wilson? His Books and
where to get them.
2. Book 1: The Business of Share Trading
3. Book 2: The Next Step to Share Trading
Success
4. Book 3: Break Through Trading
5. Whats in BullCharts.
6. Q & A
Who is Leon Wilson?
Leon Wilson is the author of three highly respected books
"The Business of Share Trading , "The Next Step to Share
Trading Success and Break Through Trading. He also
produces two weekly reports on the stock market called
Tech Charts and Tech Sectors. These are available on a
subscription basis. For details of these reports and cost see
his web site http://www.wilsontechstats.com/aboutus/aboutus.htm.
His web site also contains a number of useful links and
information on share trading. Leon lives in Tasmania.
Leon is responsible for a number of everyday trading tools
which many now take for granted, such as the ATR safety
net, GMMACD, Minimum entry technique, directional index,
relative% and ROC parabolic trailing stops, just to name a
few. The majority of these tools and strategies have been
included in BullCharts.
Book 1: The Business of Share
Trading
This book covers topics From Starting
Out to Cashing in on Trading the
Australian Market.
Part I looks at the Basic Principles and
Techniques.
Reality Check are you suited to share
trading?
Basic Nuts & Bolts assessing whether to
use Fundamental Analysis, Technical Analysis
or both.
Tools of the Trade computers, isp,
software, data, and trading capital.
What should I trade? Shares - Blue chip,
Mid-cap or speculative. Short selling,
Exchange traded options, warrants, futures,
CFDs, currency etc.
Part I - Basic Principles and Techniques.
The BeST Trading Plan (Business of Share
Trading). Leon sets out his own trading plan in
detail and notes that it took over 12 months for
his plan to develop.
The BeST Style and Structure covers the
type of trading Intra-day, Short term
(Momentum), Position and Buy and Hope!
And whether your financial structure should be
sole trader, Partnership, Corporation or Trust.
Record Keeping Trading records,
Expenses, Income, Assessment sheets,
Trading logs, Trade calculations, purchases
and operating expenses.
Part I - Basic Principles and Techniques.
In Need of Direction looks at up-trends,
down- trends and non-trending stock. There
are stable and unstable trends, and
accumulation and distribution.
Primary Analysis Basics does all the hard
work and reveals the genuine opportunities.
Types of charts include Line, Bar, Candlestick
and Point and Figure. Primary Analysis
Tools are directly derived from, or based
directly on, price action or liquidity.
Examples are trend lines, support and
resistance lines, chart patterns, price
bar/candlestick charts and point and figure
charts, volume or any other method where
data is not manipulated.
Part II Indicators and Opportunities.
Secondary Analysis Basics.
Indicators are used for confirmation only and, in reality,
indicators only give you added confidence in your decision
making process.
Indicators are assessed according to usefulness
under specific market conditions.
Scoring Table
DDDDD
The Perfect Indicator
DDDD
Better than most indicators available
DDD
Reasonable indicator for most applications
DD
Not the flashiest choice, but does allow for
suitable interpretation on some occasions
Better than no indicator, and even this is
debatable.
Part II Indicators and Opportunities.
Volatility Indicators:
Bollinger Bands
DDDD
Reversal Trading
DDDD
Break-out Trading
DD
Trend Trading
Average True Range
DD
Reversal Trading
DD
Break-out Trading
DD
Trend Trading
DDDD
Stop Loss Application & Position
Sizing
Part II Indicators and Opportunities.
Individual Strength:
On Balance Volume (OBV)
DDD
Reversal Trading
DDD
Break-out Trading
DDD
Trend Trading
Negative Volume Index (NVI)
DD
Reversal Trading
DD
Break-out Trading
DD
Trend Trading
Part II Indicators and Opportunities.
Momentum:
Relative Strength Index (RSI)
DDD
Reversal Trading
DDD
Break-out Trading
DDD
Trend Trading
MACD
D
Reversal Trading
Break-out Trading
DDD
Trend Trading
Part II Indicators and Opportunities.
Momentum:
MACD Histogram
DDD
Reversal Trading
DD
Break-out Trading
Trend Trading
Directional Movement (ADX Group)
DD
Reversal Trading
DD
Break-out Trading
DDD
Trend Trading
Part II Indicators and Opportunities.
Momentum:
Stochastic Oscillator
DD
Reversal Trading
DD
Break-out Trading
DD
Trend Trading
Rate of Change (ROC)
DDD
Reversal Trading
DDD
Break-out Trading
DDD
Trend Trading
Part II Indicators and Opportunities.
Momentum:
Price Oscillator
D
Reversal Trading
Break-out Trading
DDD
Trend Trading
Trend:
Moving Average
D
Reversal Trading
Break-out Trading
DDD
Trend Trading
Part II Indicators and Opportunities.
Trend:
Multiple Moving Averages (MMA)
DD
Reversal Trading
DD
Break-out Trading
DDDD
Trend Trading
Future Price Action:
Fibonacci Retracement
Time Cycles
Other:
Gaps & Volume Spikes
Part II Indicators and Opportunities.
Secondary Analysis Basics.
Trading Opportunities There are only three
situations where you can trade successfully.
They are:
Trend Trading
Break-out Trading
Reversal Trading
Part II Indicators and Opportunities.
TREND TRADING The BeST approach.
STEP 1
Price action must be above the 21 day Moving
Average, and above the 150 day Moving
Average; or
Price action must be above the 21 day Moving
Average and the short term group of Moving
Averages is above the medium term group of
Moving Averages with the representation as
multiple moving averages.
Part II Indicators and Opportunities.
TREND TRADING The BeST approach.
STEP 2
If volume is above the 5-day moving average
and the 5-day moving average is greater than
the 50-day moving average then proceed to
Step 4.
If volume is above the 50-day moving average
but below the 5-day moving average and the 5day moving average is greater than the 50-day
moving average, proceed to Step 4.
Otherwise go to Step 3.
Part II Indicators and Opportunities.
TREND TRADING The BeST approach.
STEP 3
If volume is below the 50-day Moving Average
then step aside and wait for price action and
volume to gain market support.
On Balance Volume must be increasing to
confirm the presence of buying pressure. OBV
must be above the 13-day moving average.
Part II Indicators and Opportunities.
TREND TRADING The BeST approach.
STEP 4
Secondary analysis tools must confirm the
underlying strength of current price activity no
confirmation, no trade. If so proceed to step 5.
Leon uses the following secondary analysis
tools to assess a stocks current trend strength:
ADX group of indicators (Directional
Movement)
On Balance Volume (OBV)
Multiple Moving Averages (MMA)
Relative Strength Index (RSI)
Price Oscillator
Part II Indicators and Opportunities.
TREND TRADING The BeST approach.
STEP 5
Before placing an order on the market, calculate
position size in accordance with risk
management procedures. Calculate stop-loss
criteria prior to entry.
STEP 6
Trade Entry at Maximum Allowable Position
Size.
Part II Indicators and Opportunities.
BREAK-OUT TRADING The BeST
approach.
Ideally, a break-out trade develops after the stock
has experienced a pause in trend action such as
consolidation, accumulation or similar nontrending price activity.
For non-trending price action, Leon applies the 3%
rule: Price action must be at least 3% above the
line of resistance, trend line or pattern top before
he will enter the trade.
Part II Indicators and Opportunities.
BREAK-OUT TRADING The BeST
approach.
STEP 1
If the period of consolidation is fairly short in
duration and price action is still above an
upward trend line, Leon does not apply the 3%
break-out rule. Proceed to Step 3.
Otherwise, apply the 3% break-out rule
regardless of the duration. Proceed to Step 2.
Part II Indicators and Opportunities.
BREAK-OUT TRADING The BeST
approach.
STEP 2
The low price must be a minimum of 3% above
the line of resistance. If so, proceed to Step 4. If
price action is not 3% above the line of
resistance then wait for additional periods for
confirmation.
STEP 3
The low price must be above the line of
resistance, pattern top or similar. Price action
must still be above the upward trend line. If the
low price is above the line of resistance and the
upward trend line, proceed to Step 4.
Part II Indicators and Opportunities.
BREAK-OUT TRADING The BeST
approach.
STEP 4
Price action must be above the 21 day moving
average. If price action is above the 21-day
moving average then proceed to Step 5.
STEP 5
If volume is above the 5-day moving average
and the 5-day moving average is greater than
the 50-day moving average then proceed to the
secondary analysis tools. (Step 7).
Part II Indicators and Opportunities.
BREAK-OUT TRADING The BeST
approach.
STEP 5 (cont.)
If volume is above the 50-day average but below
the 5-day moving average and the 5-day moving
average is greater than the 50-day moving
average, proceed to Step 7.
Otherwise, proceed to Step 6.
STEP 6
If volume is below the 50-day moving average
then wait for price action and volume to gain
market support.
Part II Indicators and Opportunities.
BREAK-OUT TRADING The BeST
approach.
STEP 6 (cont.)
On Balance Volume (OBV) must be increasing
to confirm the presence of buying pressure.
STEP 7
Secondary analysis tools must confirm the
underlying strength of current price activity no
confirmation, no trade. Secondary analysis tools
are: Bollinger Bands, OBV, MACD-H &
Stochastic Oscillator (21,7,9). If secondary
analysis confirms trend strength, calculate
position size and place market orders.
Part II Indicators and Opportunities.
REVERSAL TRADING The BeST
approach.
A reversal trade, according to Leon, is where
price action has reversed the trend direction
without a period of consolidation,
accumulation or any obvious period of nontrending price activity.
STEP 1
If price action has broken above a downward
trend line, proceed to step 2, or
If price action has broken from a bullish chart
pattern, proceed to Step 2. The break-out from a
bullish charting pattern must also break above
the downward trend line.
Part II Indicators and Opportunities.
REVERSAL TRADING The BeST
approach.
STEP 2
If price action is in the purchase section of the
count-back entry indicator, proceed to Step 3.
(Otherwise proceed no further).
STEP 3
If price action is above the 21-day moving
average, proceed to Step 4.
Part II Indicators and Opportunities.
REVERSAL TRADING The BeST
approach.
STEP 4
If volume is above the 5-day moving average
and the 5-day moving average is greater than
the 50-day moving average, proceed to
secondary analysis tools (Step 6).
If volume is above the 50-day moving average
but below the 5-day moving average and the 5day moving average is greater than the 50-day
moving average, proceed to secondary analysis
tools. (Step 6).
Part II Indicators and Opportunities.
REVERSAL TRADING The BeST
approach.
STEP 4 (cont.)
If volume is below the 5-day moving average
and the 5-day moving average is less than the
50-day moving average, proceed to Step 5.
If volume is below the 50-day moving average
but greater than the 5-day moving average,
proceed to Step 5.
STEP 5
If volume is below the 50-day moving average,
wait until the price action is supported by
volume, then proceed to Step 6.
Part II Indicators and Opportunities.
REVERSAL TRADING The BeST
approach.
STEP 5 (cont.)
On balance volume (OBV) must be increasing to
confirm the presence of buying pressure.
STEP 6
Secondary analysis tools must confirm the
underlying strength of current price activity no
confirmation, no trade.
Secondary analysis tools used are Trend lines,
OBV, Count-back entry, MACD-H, Bollinger
Bands, RSI, Stochastic Oscillator. If these tools
confirm trend strength, calculate position size
and place market orders
Sifting the Gems from the Junk.
Manual Search
Use BullScan: Closing price is greater than 20c and
less than $5 and volume is greater than 200,000
every day in the last three days.
For a trending stock look for: Appearance of a
new high; a break-out from a bullish or continuation
charting pattern (ascending triangle, flag, pennant
etc);
For a break-out trade look for:
Break-out from a trading channel or a period of
retracement; Break-out from charting pattern (i.e.
symmetrical triangle, flag, pennant, etc); Break
above a significant line of resistance; Break-out from
a period of accumulation.
Sifting the Gems from the Junk.
Manual Search (cont.)
For a reversal trading opportunity look for:
Break above a downward trend line; occurrence of
bullish chart patterns at trend conclusion (i.e.
ascending triangles, double bottoms, compression
wedges, etc).
Trending Stocks
Use BullScan: Low price of today is greater than
the Moving Average of today; Low price of
yesterday is less than the Moving Average of
yesterday; Price Oscillator of today is greater than
0. (PO periods are Short 21 day, long 150 day)
Sifting the Gems from the Junk.
Trending Stocks (cont.)
Finding stocks making new highs is a
common search in trending markets. All
these stock have underlying support
either medium or long term trend.
Use BullScan: The closing price of today is the
highest it has been in 21 days; the closing price of
today is greater than the Moving Average of today;
the Volume of today is greater than 200,000 and
the Price Oscillator of today is greater than 0.
Sifting the Gems from the Junk.
Break-out
Use BullScan - Breakout: Closing price of today
exceeds the Closing Price of yesterday by more
than 5% but less than 1000%; Volume of today
exceeds the volume of yesterday by more than
30% but less than 1000%; The Low Price of today
is greater than the Moving Average of today; the
Low Price of yesterday is less than the Moving
Average of yesterday and the Volume of today is
greater than 200,000.
This scan includes a crossover of price action
above the short-term moving average so that
there is an early warning. It eliminates stocks that
are experiencing heavy trading activity near the
conclusion of a trend.
Sifting the Gems from the Junk.
Reversal
Use BullScan Breakout2: Low is greater than
previous Low; Previous Low is less than Low of 2
bars ago; High is greater than previous High;
Volume is between previous Volume + 30% and
previous Volume + 1000% and Close is between
0.2 and 100. This scan looks for a common low
point.
Use BullScan Reversal System -%B: Bollinger
%B (Close, Simple, 14, 2) * 100 crosses above 0;
Volume is greater than 50 bar exponential MA of
Volume; 5 bar exponential MA of Volume is
greater than 50 bar exponential MA of Volume;
Volume is greater than or equal to 100,000 and
Close is between 0.2 and 100.
Part III Bringing it all Together.
Trade Management
Contingent Stop Adjustment - automatic sell
order.
Stop Loss Triggered exit.
Developing Weakness.
Position Sizing and Stop-Loss
Management.
Risk Management
Stop Loss indicators
Synchronising, System Testing &
Paper Trading.
Book 2: The Next Step to Share Trading
Success
This book continues where The Business
of Share Trading left off.
Detailed and practical explanations are
accompanied by comprehensively
annotated charts. It discusses:
Trading patterns and parabolic trends
Effective position sizing and management
Bollinger Bands, moving averages and reversal
trading
Trading with strength, retracements, Darvas, ADX
and many other methods
Mechanical & discretionary trading
Shorting the market with CFDs
Book 3: Break Through Trading
Breakthrough Trading builds on the previous
book. In what he believes to be a world first,
Wilson has succeeded in adapting common and
popular indicators (including volume) to price
action. Instead of viewing a non-price based
indicator such as the relative strength indicator
in a separate box at the bottom of the chart,
Wilson explains how it can be plotted as a
channel in price action- creating the Wilson
channel.
Moving beyond default settings and combining
the channels with various entry and exit
strategies can dramatically improve your yearly
returns.
Whats in BullCharts?
BullScans
There are a number of scans,
some of which are Bullscript
and others are Trade
Simulations.
Whats in BullCharts?
Indicators
There are a large number of
indicators, some of which are
variations of Guppys.
